Technical Talk: S&P 500 hovering above key support

Stocks closed last week on a modest positive note as the S&P 500 finished with its first positive close after four straight losing sessions. The S&P 500 Index is now hovering not far above key near-term support in the 1,041 area (see chart below). In the short run the index may see an oversold bounce after the four days of selling. However, the inability of the previous rally to materialize into anything substantial and then to so quickly retreat certainly make us skeptical of the bulls.

That said, the trading range on the S&P 500 is fairly wide and only a violation of support near 1,041 would turn the bigger picture more negative. Market internals were modestly positive on Friday and in line with the marginal advance. However, new lows continue to creep up on a consis­tent basis and bear watching. Market volatility also popped back into the picture last week as traders played hot potato with stocks. This is in stark contrast to earlier in the year when traders were more likely to buy and be patient.

As seen in the chart above the S&P 500 is range bound between the 1,041 (upper orange line) and 1,142 (lower red line) levels. Momentum as highlighted by the 14-week RSI is in a weak­ened state as well. Given the S&P 500 has now tested this 1,041 level on three separate occasions − February 2010, May 2010 and June 2010 − any additional test would increase the likelihood of a break.

Only a move back above the 100-day moving average (1,133 level and not seen in the chart above) above which the S&P 500 recently tried to rally, and failed, would turn the short-term trend positive.

1 comment to Technical Talk: S&P 500 hovering above key support

You don’t have to be a financial genius to see that the market has definitely broken uptrend and settled into a sideways pattern. However, as has often been said “Markets don’t go sideways forever”. What do you think is the chance that it will head back up?